Canadian Renters Beware: CRA Holds Tenants Liable for Non-Resident Landlord Taxes

If a foreign landlord fails to pay taxes, the CRA can go after the tenant. And not knowing a landlord is a non-resident is not considered a valid excuse.

Canadian renters are getting a rough introduction to the country’s foreign investor problem. The Canada Revenue Agency (CRA) just informed tenants they’re on the hook for any unpaid taxes their non-resident landlord may owe. In a bizarre decision, the nation’s tax authority is telling tenants who pay rent to non-resident landlords to withhold a portion and remit it on their behalf, or they may be liable for the amount with penalties.

 Non-residents earning income in Canada are subject to a withholding tax, a general rate of income withheld to ensure the non-resident tax bill can be covered if they never file taxes. That includes any non-resident that receives rental income from property, and that the withholding rate is generally 25% of the gross income.

 Last year, a tenant took the Minister of National Revenue to court, arguing that he did not know his landlord was a non-resident. The tenant, whose Italy-based landlord owned a single unit in a Montreal building, lost the Tax Court appeal on the grounds that they were a Canadian resident paying rent to a non-resident landlord, and were therefore required to withhold and remit 25 per cent of the rent to the CRA. The judge acknowledged “the harsh consequences,” in her decision, but still held the “resident payer,” or renter, liable.

 According to the CRA, a payer (tenant) or agent (property manager) must withhold 25% of the gross rental income paid or credited to the landlord, and then submit it to the CRA within 15 days after they’ve paid rent. In addition, the tenant of a non-resident is required to file an NR4 tax form. 

If the payer fails to withhold, remit the amount, and file an NR4—they may be held liable. The CRA also threatens they may charge interest compounded daily, as well as additional penalties on top of the amount. 

To protect themselves, tenants could start asking for statutory declarations from their landlords, attesting to their tax residency status. But the landlord could move out of the country and their status changes, and the tenant doesn’t know.

 99.99 per cent of all tenants in Canada are unaware of this rule, and it should be the responsibility of the CRA to inform the renting public that they could be on the hook for this withholding tax.